DATE

Steve Saretsky -

A new report from Altus Group sheds some light on property taxation across Canada. The main point being that small businesses are suffering under very high commercial property values and the taxation that comes with those valuations. In other words, it’s hard for a small business to turn a profit when property taxes are ballooning each year. The report begs the question of whether or not some of the commercial tax burdens should be offloaded onto residential property owners. According to Altus Group findings, municipalities are indeed starting to shift the tax burden onto the average homeowner. The average commercial-to-residential tax ratio for all municipalities surveyed in 2019 was 2.84 as compared to 2.90 in 2018. For the first time in at least 20 years, Vancouver’s ratio dropped below 4.0. What is interesting is that Vancouver actually has the lowest commercial property taxes on a per $1000 of assessment basis. In other words, commercial property taxes are actually low based on the property value, the problem is the property values are so high that the overall tax burden is still hurting small businesses. Indeed there are repercussions to extreme property valuations and Real Estate speculation. These small commercial properties, which

Steve Saretsky -

This post is an excerpt from the Saretsky Weekly Newsletter. You can subscribe here The Liberal Government succeeded in their re-election bid, maintaining a minority Government. Given their pre-election promises, the Canadian housing market could face further upheaval should they follow through with said promises. The first of which would be a nationwide 1% annual speculation/empty homes tax targeting non-residents, and the second would be a generous boost to the first time home buyer incentive. Previously, the FTHBI’s maximum “leverage ratio” of 4:1 meant a first-time buyer’s mortgage + CMHC incentive couldn’t exceed four times their income. And total household income was capped at $120,000, limiting purchase prices to a maximum of $480,000. However, the Liberals have promised to boost that amount for first time buyers in Greater Toronto, Vancouver and Victoria. Qualifying incomes will be pushed up to $150,000 and mortgages and incentives up to 5x their income. Thus, a first time buyer could qualify for a home with government assistance up to $790,000. This could spell trouble in the nations frothiest cities which are still facing supply woes in that price bracket. Take Vancouver, for example, despite a significant correction in the broader housing market, activity remains robust for homes

Steve Saretsky -

Now that the Liberal Government has solidified its re-election bid we must now wait and see if they move ahead with their proposed housing policies. Let’s discuss the controversial first time home buyer incentive program which they promised to stimulate further. Previously, the FTHBI’s maximum “leverage ratio” of 4:1 meant a first-time buyer’s mortgage + CMHC incentive couldn’t exceed four times their income. And total household income was capped at $120,000. However, the Liberals have promised to boost that amount for first time buyers in Greater Toronto, Vancouver and Victoria. Qualifying incomes will be pushed up to $150,000 and mortgages and incentives up to 5x their income. Of course this will only boost demand/ stimulus for homes priced under $790,000 where buyer demand remains strong and inventory remains tight, even in Vancouver. Despite a significant correction in the broader housing market, activity remains robust for homes under $790,000 across Greater Vancouver. As of September, the sales to actives ratio for homes under $790,000 sits at 27%, this is still indicative of a sellers market. Meanwhile, months of inventory which is another popular metric to gauge market conditions, sits at just 3.7 as of September. A balanced market is considered anything between 4-6

Steve Saretsky -

With the re-election of the Liberal Government, Canadians have at least some clarity on the future direction of housing policy. The Liberal Government proposed an increase to the first time home buyer program, of upwards of $780,000 in Vancouver, Victoria and Toronto. They also proposed a nationwide speculation tax on non-resident owners. Of course, it remains to be seen if they will actually follow through with these ideas. What we do know for sure is that the Canadian housing market is enjoying a recent bounce in activity. Nationally home sales jumped 15% year-over-year in September, and it appears residential construction spending might be on the rebound as well. After contracting for six consecutive months (November 2018- March 2019) investment in residential construction spending has been growing for four straight months.  The most recent growth ticked in at 3.8% on an annual basis in August. This is encouraging news given how dependant the Canadian economy is on the Real Estate sector. On a seasonally adjusted annual rate residential construction spending neared record highs of $127B. Oddly enough, Vancouver residential construction spending remains in positive territory. In other words, the weakness in overall housing activity and the pull-back from property developers has

Steve Saretsky -

The national housing market, despite all odds, continues to defy gravity, with both sales and prices picking up after a temporary slowdown near the end of last year and into the early half of this year. I believe this is more a reflection of falling mortgage rates which have finally fed through into increased housing activity. Per the Canadian Real Estate Association data, national home sales are now slightly above the 10 year average. The increase in housing activity has been telegraphed through a noticeable increase in residential mortgage credit growth. This has been accelerating since April, and while the pace of growth is still very weak, residential mortgage credit is actually growing faster than it did prior to the B-20 mortgage stress test! Of course activity levels vary by city, but the general theme is housing activity is increasing across the vast majority of Canada. Considering we are still enjoying full employment, record high immigration, and near record low borrowing costs it shouldn’t come as a surprise that housing activity remains robust. The question really should be, what happens when any of those three change? It is unlikely rates are going up meaningfully anytime soon, however you could certainly

Steve Saretsky -

While Vancouver has enjoyed a sizeable increase in sales activity recently, it doesn’t appear to be a fuelled by an increase in Chinese capital outflows as it had previously in 2015/16. Recent analysis from BCA Research, the worlds leading provider of global macro research since 1949, shows Chinese capital outflows remain muted. As we can see in the chart above, China’s foreign reserves remain stable and capital outflows have pulled back sharply from a few years ago. Thus, it shouldn’t be surprising to see the high end luxury market continues to struggle in Greater Vancouver. In fact, the high end market has been completely exempt from the supposed ongoing recovery in the Vancouver housing market. As of September, there is 29 months of inventory for sale across Greater Vancouver for homes priced $3M and up. For context, anything above six months is considered a buyers market. The current 29 months of inventory for sale continues to put downwards pressure on the luxury market, and remains miles away from the cycle lows of 3.6 months of inventory set back in March 2016.

Steve Saretsky -

Following a remarkable first half of the year, in which WeWork recorded a loss of $690 million on $1.5 billion in revenue, the company initially considered cutting its valuation by more than 50%, before ultimately ousting its CEO and withdrawing its filing to go public. For a little context on WeWork, the real estate company which has creatively branded itself as a tech company, shares a nearly identical business plan as Real Estate firm, IWG (Regus Americas). But of course, IWG, despite having 8x as many locations as WeWork and twice the revenue, is hardly looked at through the same lens as WeWork. This of course has finally stoked concerns surrounding the viability of the company and the potential ripple effects it may have on the cities in which it has “invested” in. Here in Vancouver, WeWork is the region’s second-largest office tenant, after Amazon. WeWork has a total footprint of 678,000 square feet, including 279,000 sqft of existing space and 399,000 sqft of planned space, with firm deals, across nine locations, according to a recent report on Canada’s co-working market by CBRE brokerage house. Ross Moore, a senior vice-president and tenant advisory specialist with Cresa in Vancouver, said WeWork

Steve Saretsky -

The condo market showed significant signs of stabilization as sales jumped 43% from last year.  In fact, sales are hovering right around ten year averages. This coincides with our view that it has once again become a local end user market. Armed with ultra borrowing rates, and full employment, this segment of the market is back and moving after a twelve month hiatus.  Condo prices are beginning to show signs of stabilization as well. In the chart below we can see the MLS benchmark (a smoothed out and lagging indicator) showing prices being down 6.5% year-over-year, while the average price per square foot is drifting closer to positive territory, but still down 2.5% from last year.  Similar to the detached market, new condo listings are also being suppressed as disgruntled sellers hold on for better market conditions. Although, we believe given the record number of new units coming to market in the next eighteen months that condo supply will prove much more elastic. Regardless, the months of inventory today remains in check at 4.4 months of supply. This is considered balanced, and is not indicative of seeing downwards pressure on prices. Hence our overall view that condo prices have stopped

Steve Saretsky -

Detached sales bounced 47.5% year-over-year in September. The large increase comes off weak base effects, as September 2018 was the slowest year for detached home sales in over two decades. When we extrapolate further out, we can see that detached house sales this year were still 19% below the ten year average. In essence, sales volumes are finally increasing after several years of sellers trying to hold out. Most seller needs to go through the psychological and emotional process of trying their initial listing price, before eventually reducing their price. This sometimes takes a year or two and requires changing Realtors multiple times before coming to the unfortunate conclusion that their house is worth as much as they had hoped. As we can see, sellers are taking lower prices with the MLS benchmark price of a detached home dropping 8.6% year-over-year. However, not all sellers are capitulating and heading for the exits. In fact, new listings remain low. We are seeing more sellers pull their listing off the market out of frustration, and opting to wait it out for better times. In fact, the 12 month average for new listings has plummeted to lows even worse than the 2008 financial

Steve Saretsky -

Identical to September, the Greater Vancouver housing market notched a 46% year-over-year increase in sales activity for the month of October. This markets four consecutive increases in sales volumes on an annualized basis. On the surface, the numbers look good and most would conclude the recovery is on and it’s onwards and upwards from here. However, the fundamentals behind those numbers suggest cautious optimism is warranted. We still have not solved affordability issues, and given the high levels of household indebtedness it remains uncertain how locals will be able to drive prices much higher, barring an easing in credit standards or another inflow of foreign capital. Rather, the recent uptick in housing activity appears more attributable to a number of local buyers stepping off the sidelines thanks in part to lower mortgage rates and home prices. The recent increase in sales has put a stop to rising inventory levels and thus, has also stemmed prices from falling further. We went from record low sales earlier this year to October sales finishing 10% above the ten year average. In other words, there’s still a lot of volatility and uncertainty in the market today. Let’s dive in.

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The Canadian Economy

Steve Saretsky -

A new report from Altus Group sheds some light on property taxation across Canada. The main point being that small businesses are suffering under very high commercial property values and the taxation that comes with those valuations. In other words, it’s hard for a small business to turn a profit...

Steve Saretsky -

This post is an excerpt from the Saretsky Weekly Newsletter. You can subscribe here The Liberal Government succeeded in their re-election bid, maintaining a minority Government. Given their pre-election promises, the Canadian housing market could face further upheaval should they follow through with said promises. The first of which would...

Steve Saretsky -

Now that the Liberal Government has solidified its re-election bid we must now wait and see if they move ahead with their proposed housing policies. Let’s discuss the controversial first time home buyer incentive program which they promised to stimulate further. Previously, the FTHBI’s maximum “leverage ratio” of 4:1 meant...

Steve Saretsky -

With the re-election of the Liberal Government, Canadians have at least some clarity on the future direction of housing policy. The Liberal Government proposed an increase to the first time home buyer program, of upwards of $780,000 in Vancouver, Victoria and Toronto. They also proposed a nationwide speculation tax on...

Steve Saretsky -

The national housing market, despite all odds, continues to defy gravity, with both sales and prices picking up after a temporary slowdown near the end of last year and into the early half of this year. I believe this is more a reflection of falling mortgage rates which have finally...

Steve Saretsky -

While Vancouver has enjoyed a sizeable increase in sales activity recently, it doesn’t appear to be a fuelled by an increase in Chinese capital outflows as it had previously in 2015/16. Recent analysis from BCA Research, the worlds leading provider of global macro research since 1949, shows Chinese capital outflows...

Steve Saretsky -

Following a remarkable first half of the year, in which WeWork recorded a loss of $690 million on $1.5 billion in revenue, the company initially considered cutting its valuation by more than 50%, before ultimately ousting its CEO and withdrawing its filing to go public. For a little context on...

Steve Saretsky -

The condo market showed significant signs of stabilization as sales jumped 43% from last year.  In fact, sales are hovering right around ten year averages. This coincides with our view that it has once again become a local end user market. Armed with ultra borrowing rates, and full employment, this...

Steve Saretsky -

Detached sales bounced 47.5% year-over-year in September. The large increase comes off weak base effects, as September 2018 was the slowest year for detached home sales in over two decades. When we extrapolate further out, we can see that detached house sales this year were still 19% below the ten...

Steve Saretsky -

Identical to September, the Greater Vancouver housing market notched a 46% year-over-year increase in sales activity for the month of October. This markets four consecutive increases in sales volumes on an annualized basis. On the surface, the numbers look good and most would conclude the recovery is on and it’s...

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The Saretsky Report. December 2022